Much to investors’ relief, YES Bank, which declared its September quarter results on Thursday, did not throw up any negative surprises on the asset quality front. After Axis Bank’s disclosure of a large asset sale to ARCs — which did not go down well with the market — there has been concern on the performance of other private banks with higher corporate exposure. But YES Bank, put to rest such fears by indicating that there has been no sale of assets to ARCs in the past four quarters. The bank posted a strong 26.5 per cent growth in net profit during the quarter, on the back of 29 per cent growth in loans.
However, the bank did see a marginal increase in bad loans, with gross non-performing assets going up to 0.61 per cent of loans in the September quarter, from 0.46 per cent in the previous quarter. YES Bank, being predominantly a corporate lender — this segment constitutes 68.2 per cent of total loans — has seen some pressure on asset quality in recent quarters. But while its GNPA (as a per cent of loans) has gone up steadily in recent quarters, it is still lower than most other private banks.
Over the past four years, YES Bank’s GNPA has been below 0.5 per cent of loans. In the September quarter, this figure went up marginally. Of the ₹120 crore slippages during the quarter, about half was due to one account in the infrastructure space. The management believes that it will be able to recover this amount in the coming quarters. The bank has thus provided a tad lower than usual for this account. Thus, the bank’s provision coverage of over 70 per cent in the past has come down to 67.7 per cent in the September quarter.
There is concern on the increasing stress in sectors such as infrastructure (power in particular) and iron and steel. YES Bank’s exposure to the power and electricity segment stood at 9.8 per cent in the September quarter. Of this, 3.4 per cent pertains to the renewable energy space, where the execution risk is much lower. In the non-renewable space, almost its entire exposure (2.6 per cent) is operational. The bank has no project finance exposure to conventional power projects and state electricity boards.
Of the 3.8 per cent exposure to the iron and steel sector, over 80 per cent is to well-rated corporates (A or above).
The healthy growth in loans led to a strong net interest income growth of 29 per cent during the September quarter. The net interest margins remained steady at 3.3 per cent, despite the cut in base rate — to which lending rates are pegged. YES Bank reduced its base rate by 25 basis points in June.
Thanks to the improving share of low-cost CASA deposits, the bank has been able to maintain its margins. CASA was up 40 per cent in the quarter. YES Bank reduced its base rate again in October by 25 basis points. The management is confident of maintaining its margins at current levels on the back of healthy traction in low-cost deposits. The bank has also recently (effective November) lowered its interest on savings account from 7 per cent to 6 per cent. This is likely to aid margins in the coming quarters.